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FEAR CREEPS IN

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Fear is creeping into the market as the S&P 500 Volatility Index ($VIX) forms a higher low. And you thought the VIX was dead! Well, actually, it is pretty dead as volatility slows to a crawl. The VIX has been spot-on when it comes to calling market risk (volatility). The S&P 500 recorded a four year high in early August and the VIX recorded a 10 year low. The S&P 500 has gone nowhere since December 2004 and the VIX declined from 15% to 10%. This simply confirms the dullness of the current market environment.

As the red carets show, it is lower low after lower low for the last few years. The VIX remains within a falling price channel and clear downtrend. However, the indicator formed a higher low in September (green caret) and is poised to break its August high. A mini-breakout would show an increase in volatility, which is also known as risk and fear. With increased fear comes more uncertainty and uncertainty breeds contempt. This will result in flat stock prices at best and lower stock prices at worst. Should the VIX break above upper channel trendline and April high, a new uptrend in volatility (risk) will begin and this will translate into lower stock prices.


Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More
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